Small companies have a tough time covering health insurance. They are less likely to offer it and more price-sensitive to it compared to larger firms. They lack the bargaining power of bigger companies.

Smaller firms also offer plans of lower quality, according to a new study from the Kauffman-RAND Institute for Entrepreneurship Public Policy (KRI).

KRI compared trends in HI coverage among big and small firms between 2000 and 2005. They found that in 2005, overall, the average firm spent 7% to 10% of payroll on HI. The smallest firms with fewer than 11 employees had substantially greater cost growth than larer firms — 53% relative to payroll, compared with 19% cost growth at firms with 11 to 24 employees.

Employees at smaller firms providing HI also pay more out-of-pocket (OOP) health costs than workers at larger firms. An average employee at a small firm spent 1.9% of earnings OOP for health, compared to an employee at a firm with >100 employees spending 1.3% of OOP of earnings for health.

Health Populi’s Hot Points: KRI’s bottom-line is that employer-based HI could become unaffordable for smaller firms. It already is for so many. As health insurance costs continue to increase, a growing number of employers face that global competitive advantage that is unique to American business: covering health care. The trend among employers for managing growing HI costs is to pass more of those cost increases on to employees. Since KRI found that employees in smaller companies spend more OOP on health costs, the take-up of HI among employees at smaller firms could continue to decline…thus resulting in more uninsurance among workers at smaller firms.